Aid and developing regional integration

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Lim, K.Y. and Liu, C. ORCID: 0000-0003-3770-4821, 2024. Aid and developing regional integration. International Review of Economics and Finance. ISSN 1059-0560 (Forthcoming)

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Abstract

This paper examines megatrends and interdependence of the loan aid-capital investment links across developing regions. Theoretically, it contributes to the existing studies by providing a novel theoretical framework with a dual-objective donor-giving grant (driven by a benevolent objective) and loan aid (profitability motive), as well as a public-private partnership-like investment structure and multi-region feedback mechanism. Empirically, this paper adds to the literature by allowing for cross-heterogeneity and interdependencies across regions of loan aid-capital investment link. We estimate a panel structural VAR model of grant aid, loan aid, private consumption, and aggregate capital stock using data from nine developing regional country blocs covering the 1961-2017 period. Amidst a generally weak aid-investment link, we find loan aid to Granger causes capital accumulation, and among African regions, it is the most (least) productive - in terms of within- and spillover effects - in the IGAD (ECOWAS) region. In addition, our results suggest deeper regional integration between the Sub-Saharan African regions than the collective Latin American & Caribbean regions and the two Southern Asian regions (Southeast Asia and South Asia) examined.

Item Type:

Journal article

Publication Title:

International Review of Economics and Finance

Creators:

Lim, K.Y. and Liu, C.

Publisher:

Elsevier

Date:

1 May 2024

ISSN:

1059-0560